"The Effect of global value chains participation on returns of smallholder coffee farmers in

Ethiopia".

ByKingsley N Emeana

Doctoral research StudentUniversity of the West of Scotland

Kingsley.nnamdiemeana@uws.ac.uk

And

Centre for African Research on Enterprise and Economic Development (CAREED)

Development Studies Association (DSA) Scotland Meeting 10 January 2020, University of Strathclyde, Glasgow.

Introduction

▪ More than 85% of coffee producersworldwide are smallholder farmers and theyproduce in the rural areas (Assefa et al.,2015).

▪ Coffee: world’s favourite beverage andlargest consumed commodity; also secondmost traded commodity, is predominantlyproduced by smallholders in developingcountries (Minten et al., 2014; Fundira,2015).

▪ Coffee production overall has been indecline for two consecutive year whileconsumption has increase with about 1.3%contributing to coffee price volatility (ICO,2017b).

▪ Smallholder farmers are mainstay ofagricultural production in developingcountries.

▪ Smallholder farmers are defined interms of: land size (varies according tocountries) and units of labour (FAO,2004; OECD, 2015; UNCTAD, 2015a).

▪ 2.5 billion people globally dependpartially or completely on agriculturalproduction for means oflivelihood(UNCTAD, 2015b).

▪ 1.5 billion of them are smallholderfarmers and they supply 70% of thetotal global food production (FAO,2011; UNCTAD, 2015b).

Coffee production in Ethiopia • From an overall population of 105 million 15 millionpeople depend on coffee production for survivaland 1.2 million are smallholder producers,(Ferris etal., 2014; Troster, 2015; Wordometer, 2017)

• Most coffee smallholder farmers belong to acooperative and produce on less than 2ha of land(Ferris et al., 2014; Minten et al., 2014; Troster,2015).

• Cooperatives play significant role in aggregatingsmall quantities of coffee from smallholder farmersand export through coffee unions.

• The quantities produced are often too small to meetthe requirements of participating in global valuechains (GVCs).

• Inefficient transport systems, collection processes,unorganised and fragmented markets, poorprocessing methods, traceability issues are factorsaffecting coffee production

▪ Ethiopia regarded as the birthplace ofArabica coffee and is known for its highquality.

▪ Coffee is very significant in social gatheringand local consumption.

▪ Ethiopia consumes up 50% of its coffeeproduction (Ferris et al., 2014; Minten et al.,2014; Troster, 2015).

▪ Coffee production is predominately in ruralareas mainly in the South and West ofEthiopia with Yirgacheffe, Sidamo and Haraarthe leading areas for premium quality coffee.

▪ Eighth largest exporting country in the worldand second largest in Africa after Ugandawith Brazil largest exporting country in theworld (ICO, 2017a).

▪ Coffee exports account 30% of Ethiopia’s totalforeign exchange revenues (Troster, 2015;Mohan et al. 2016).

Global Value chains Participation and Coffee returns

▪ GVCP associated with efficiency and value, howefficient is Ethiopian coffee sector?

▪ Ethiopian Commodity market (ECX) a formermarket to interact between global market anddomestic producers? Many of these smallholderfarmers and their cooperative unions participate inthis Exchange market?

▪ Survey showed 418 smallholder farmers and theircooperatives trade direct in the domestic marketand foreign buyers.

▪ Processing and traceability.

▪ Quality

▪ Access to finance.

▪ Global value chains (GVCs) is a framework that have become very prominent amongst economic development researchers.

▪ Argument whether GVCs is to advance neo-liberal or pro-poor development objectives (Dalle et al. 2014).

▪ GVC provides a platform form economic and social upgrading.

• GVCs participation offers opportunities and threats to participating countries/firms.

▪ Ethiopia is at the bottom of coffee value chains (Producers).

• Most smallholder farmers are not export oriented and lack the capacity to participate in the GVC (Volume, bargaining power, storage, and technicalities.

▪ Cooperative unions act as agents for these producers in the international market.

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Empirical approach • Binary logistics was used to run the regression.

• GVCPI= 𝜶 + 𝜷𝟏𝑷𝒊 + 𝜷𝟐𝑹𝒊 + 𝜺i

• Where GVCP means Global value chains Participation (Question: 23)

• P means productivity (Questions 18/13)

• R means Returns (Question: 21)

Result

▪ This study aims to contribute to the empirical literature by examining the robustness of factors frequently suggested in previous academic papers in predicting the probability of participation in the international coffee market by small scale producers in Ethiopia compared with their large scale counterparts.

▪ Dependent variable is the measure of participation in the international coffee export market. From the questionnaire, this is captured by the response to question 23 recoded as (yes = 1, No = 0)

▪ Explanatory variables: Two explanatory variables to test GVCP used which are returns (captured in question 21) and productivity (captured 18/13)

• Out of 600 farmers surveyed in 3 different regions (Harar, Sidama and Yirgacheffe) 583 where correctly answered and returned.

• But the focus for today is on Just GVCP.

Variables in the Equation

B S.E. Wald df Sig. Exp(B)Step 1a P .702 .228 9.495 1 .002 2.018

R -.062 .200 .096 1 .756 .940

Constant -2.672 .344 60.272 1 .000 .069

a. Variable(s) entered on step 1: P, R

Findings and Conclusions• Lack of rural road network

• Inefficient means of transportation

▪ Rural-Urban migration

▪ High level of illiteracy amongst these farmers

▪ Inefficient manpower

▪ Manual farming process

▪ Khat farming competing with coffee production (Risk management mitigation)

▪ Government working to improve road network

▪ Police recommendation: Warehouse receipt to be issued to smallholder farmers and duration increased.

▪ Strong Private Institutions encouraged.

• Too many middlemen

• Lack adequate storage facilities and processing facilities for the cooperatives

• Absence of private investors and extension services.

• Bank requirements and collateral barrier to credit access.

• Large domestic consumer market

Thanks for Listening